Montek Singh Ahluwalia, Deputy Chairman Planning Commission of India, has described in an interview the downward adjustment in the forecast of growth of Indian economy. He said, “When we started preparing the Approach to the Twelfth Plan in 2010, we considered the range of 9 to 9.5% growth as feasible but by the time the Approach was presented to the NDC in 2011, we concluded that 9% was the only feasible….By the time the draft plan was prepared in the middle of 2012…. we scaled growth prospects down to 8.2%. However, global assessments of growth continued to deteriorate….A few weeks before the plan was put before the National Development Council in December 2012….we decided that even 8.2% may be too high so we pegged growth in the Twelfth plan at 8%. This is actually very ambitious since we will be below 6% in 2012-13.”
THE BACKGROUND
Ahluwalia asserted that the potential of growth in India was tremendous and a number of “difficult decisions, some at the central government level and others at state levels, are required to be taken for realising these potentials.” He emphasised unambiguously that growth will have to be investment driven and this requires, inter alia, a larger flow of Foreign Direct Investment (FDI). Whatever Deputy Chairman Planning Commission has said is in consonance with the policies adopted since 24 July, 1991, known as liberalisation of economy. It may be recalled that just before the announcement of that policy by then P.V. Narasimha Rao government and spearheaded by then Finance Minister, Manmohan Singh, India faced a balance of payment crisis resulting in the humiliating act of pledging 20 tons of gold to Union Bank of Switzerland and 46 tons to Bank of England.
OVERVIEW
Much water has flown beneath the Indian economy since 1991. The economy grew at a fast pace. India achieved a growth rate of 9% in GDP by 2007. The ignominy of pledging gold was removed and pride was restored by purchasing 200 tons of the yellow metal from IMF in 2009. But there is other side of the coin too! The benefit of the growth did not percolate downward and it got sucked midway. The GDP growth is sliding downward and the possibility of further sliding down cannot be ruled out. Prices of essential goods particularly of food items are moving skyward making life of Aam Aadmi miserable. There is something amiss in the policy adopted and/or its implementation. It is understandable that the growth should be investment driven but the source and cost of the investment is a point of consideration and the mode to permeating the fruits of growth to all need to be reviewed. It is submitted that debt including that from FDI increases the cost of capital as it is preloaded with interest. On the other hand, the flow of fund in the form of Foreign Institutional Investment (FII) at the present is used for speculation in the market and it is hitting the economy below the belt.